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Standing Committee on Economics
Australian Charities and Not-for-profits Commission Bill 2012 and an associated bill

BROWN, Ms Eve, Senior Policy Manager, Trustees, Financial Services Council

COLVIN, Mr John, Chief Executive Officer and Managing Director, Australian Institute of Company Directors

CROUCH, Mr Ewen Graham Wolseley, Member, Law Committee, Australian Institute of Company Directors; and Chairman, Mission Australia

FOX, Ms Judith, Director, Policy, Chartered Secretaries Australia

GONSKI, Mr David, AC, Fellow (Life), Australian Institute of Company Directors

HICKS, Ms Kerry, Head of Reporting, Institute of Chartered Accountants in Australia

SHEEHY, Mr Tim, Chief Executive, Chartered Secretaries Australia

SHYING, Dr Mark, Senior Policy Adviser, External Reporting, Certified Practising Accountants Australia

STACEY, Mr Paul, Tax Counsel, Institute of Chartered Accountants in Australia

Evidence from Ms Brown, Mr Colvin, Mr Crouch, Ms Fox, Mr Gonski and Mr Sheehy was taken via teleconference—


CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. I will now give you an opportunity to make an opening statement before we proceed to questions. We will start with the Institute of Chartered Accountants.

Ms Hicks : Thank you very much. The Institute of Chartered Accountants represents over 50,000 members across Australia and overseas. These members work across the not-for-profit sector, some paid but many in a voluntary capacity. We work in the capacities of preparers of financial reports working directly in the sector, auditors of financial reports, directors and also advisers.

We are very supportive of broad reform of the not-for-profit sector. It is long overdue. We are also very supportive of the single regulator approach and we have been advocating that approach for a number of years. The reason is that the extent of reporting, audit and compliance obligations across Commonwealth and state governments is extensive, it is different and it is very confusing, not just for the sector but for advisers, directors and auditors of the sector.

So yes, we do want the legislation to go to parliament in the near future, but not yet. I have heard some say and I have seen some submissions saying, 'Let's get the legislation in as soon as possible and we'll fix it later.' The Institute of Chartered Accountants is not supportive of that approach. We are involved in a number of different advocacy and legislation activities in a whole range of different areas. We have seen that approach adopted in the past and fixing it later is very, very difficult to do. So we would encourage the committee to recommend a closer examination of the issues raised in the submissions, as we do not believe the draft legislation in its current form is ready to go straight into parliament.

Yes, we have seen improvements from the previous draft that we reviewed back in January 2012. There have definitely been areas where people have recommended changes that have been addressed, so it is a much better piece of legislation than the one we first saw, but issues still remain that must be fixed prior to it becoming law. We accept that, as a consequence of this, it may be necessary to defer the commencement date of the regulator. As long as it is a short delay, it would be acceptable to us.

The biggest issue with the legislation is the duplication that it will create. Duplication and red tape reduction was the major theme of the reforms, so we do not feel the legislation has adequately addressed it. We feel that it could be addressed through the incorporation of transitional provisions.

The other issues raised in our submission are secondary to the duplication issue. However, we feel that they are all critical areas that should be addressed. That includes the lack of financial reporting and governance requirements, which we realise will be included in regulations, but we found the legislation hard to review without knowledge of what was going to be in the regulations. We felt it was difficult to assess as a complete and integrated piece.

The other critical requirement, in an area in which we have a lot of members involved, is the audit and review side of the legislation. We feel that those requirements are not clear, that they need to be clarified, and there are obligations on the auditors and reviewers in that legislation which certainly the reviewers cannot do in accordance with the Australian Auditing Standards. They need to be addressed before the legislation goes into parliament.

CHAIR: Thank you.

Mr Colvin : I would like to make a brief comment. I refer to our submission dated 20 July 2012, which I will assume as read. The Australian Institute of Company Directors has over 31,500 members. The majority of the members are involved in the governance of not-for-profit organisations. From surveys it would appear that about 90 per cent of those directors perform their roles in a voluntary capacity—that is, for nothing. Company directors support the formation of the ACNC and the government's broader not-for-profit reform agenda. We are, however, disappointed with the bill before the committee and believe much more work and consultation is required on the bill and other aspects of the reform package before it can be progressed. We understand this is likely to mean a delay in implementation of the ACNC and current bills before the committee will have a considerable negative effect on the sector if they are introduced in their current form. I would like to hand over to David Gonski AC, who will discuss some of the concerns.

Mr Gonski : I have been very keen for the ACNC to occur and I believe, like the previous submitter, that there is need for this sort of legislation and, indeed, there is need for an overhaul of how the not-for-profit sector is looked at and regulated. The reason I have joined the Institute of Company Directors submission today is that I am very concerned that what is put in some parts of the bill in fact will not support nor sustain a robust, vibrant and independent sector. The reason I am concerned is that that sector depends very much on the volunteering of directors. These are people who are not paid and who give back to society, something a lot of directors feel very strongly about and a lot of Australians also believe in generally.

This bill, on its face, adds to the liabilities all these people have under the corporate law. It concerns me massively that we might be the first country in the world to make being on a not-for-profit as a director more onerous than being on a for-profit. It seems we must definitely identify what is happening with the corporate obligations on not-for-profit organisations before we decide to put extra obligations on the not-for-profit sector directors.

The second thing is that there is personal liability given to essentially volunteers. This has been looked at in other situations and, indeed, steered against. It seems quite wrong that people who are giving out of the goodness of their hearts, being proper people, should not be given the benefit of the corporate veil.

Finally, this legislation suggests that the rules which are going to apply to these volunteers will be done by regulation. So it is not clear on the first day what is going to happen and, indeed, could happen piecemeal over time. Most of the smaller groups we are talking about, the not-for-profits, do not have the ability to read and keep up-to-date with regulations each day. They do not have the depth of management and administration available to them. It seems unfair that they should then be made liable for a situation that is changing. I would urge the committee to consider the aspects of the liability of directors and, indeed, rather than taking it as a negative, which in my experience it should not be, it is a positive that people should be involved and we should be encouraging them.

Mr Crouch : Mission Australia is a not-for-profit, public company limited by guarantee that has been providing services to those in need in Australia for over 150 years. Mission Australia filed a supplementary submission yesterday. I am not sure that the committee members will have had the chance to review that, so I draw that to your attention. We support the notion of the ACNC as a one-stop regulatory shop and we support the notion of a charity passport that will see us provide financial and governance information once to be used often.

However, what is not clear and which we said in our submission in 2011 is that we thought there would be a referral of powers from the states to the Commonwealth to establish the NFP regulator. We acknowledge that, without state support and further progress through COAG, a less than optimal national regime can result with ongoing duplication and inconsistencies in the regulatory treatment across jurisdictions. I do not think I need to say too much more about that, but we do think that at least parts of the legislation ought to be delayed from an implementation perspective until there are further details available as to the federal-state legislative interaction.

There are two other points that I would like to make. The second point Mr Gonski just made, which is that I think the provisions imposing liability on directors are misconceived. They pierce the corporate veil. Directors of Mission Australia are volunteers. Under the arrangement that we have for deductible gift recipients, we do not have anybody who receives remuneration on the board. Anyone who is employed by Mission Australia must be an executive. So all the directors are part time, and a clear case of corporate governance is delegation to management. By imposing liabilities for reporting and other statutory obligations on directors, even if you put in a 'reasonable steps' defence, what you are doing is requiring directors unnecessarily to be involved in supervision and you have really misconceived the whole thing—that it is the organisation itself that should be responsible. I am sure others will say a lot about that, but that is something that I find to be a fundamental concern. It will reduce the opportunity to attract into the sector people who might otherwise make an excellent contribution to the governance of not-for-profit organisations.

The third thing I would like to say concerns the governance standards arrangements, which I think are overly prescriptive. We had thought that the way in which governance would be promoted from a transparency and improvement of governance arrangements perspective would be that there would be voluntary codes put forward which individual not-for-profits could look at and adopt as suited their needs with disclosure obligations so that they can explain, as is the case, for example, with the Australian Stock Exchange governance standards, why they have adopted them, how they have applied them, why they think this one works for them and why they think that one does not work for them. With appropriate reporting, stakeholders who look at your information will have all of the information that they need. The way in which the legislation imposes this obligation is to say that governance standards will be prescribed, albeit after consultation. However, at this stage, there is nothing to consult about, so there is no knowledge of where that is going to go. I just think as a matter of principle it is better to allow flexibility in the governance arrangements by having a voluntary arrangement with appropriate disclosure obligations as opposed to a prescriptive governance arrangement.

Dr Shying : As a professional accounting body, CPA Australia have a membership of about 139,000 members across 114 countries with about 85,000 members in Australia. Our member involvement in the sector is both through direct involvement and also through our members engaging in pro bono services. Those services are at the director level, the preparer level and the assurer level. Our members' involvement in the sector therefore often very much is indicative of a public interest aspect. So CPA Australia, in making our submission, is very much driven by that public interest perspective.

We are also supportive of the ACNC. We think that the ACNC is the best possible mechanism to increase the accountability and transparency of the sector, and to develop or lead to an appropriate level of burden in terms of compliance costs. If I look at the sector at the present time, I see that it is divided between those who might be under the Corporations Act, those who might be under association incorporation acts of different states and those who are unincorporated associations, who are subject to whatever the requirements of their own constitution are. We also see that within the association incorporation acts of the different states there is a wide variation in requirements from state to state—what is required in one state is not replicated in another—and, therefore, the costs of compliance vary greatly for the different entities.

We believe that the legislation and the regulations must provide certainty as to the obligations and responsibilities of both the entity and those charged with governance of the entity, and at present we believe that that certainty is not there. In particular, we are concerned about certainty from the point of view of the financial reporting requirements—that is, the requirements of the financial report are not presently specified and the requirements of those charged with governance in respect of those financial reports are not specified. We believe it is not appropriate to leave that unknown whilst we have entities that need to consider what their responsibilities are as they go forward and whether or not they need to make small changes or significant changes to what they currently do.

We suggest therefore that, due to the current lack of certainty, there should be a delay in respect of the legislation, as it requires charitable entities to lodge their financial report with the ACNC. We believe that the requirements around the lodgement of the financial information statement could go forward at present, but we think there should be a delay in the lodgement of the financial report until there is the appropriate level of knowledge as to what are the requirements under the financial report; what are the requirements of the assurer who is going to opine on the financial report; and what is the particular framework in which that financial report is being prepared. Thank you.

CHAIR: Thank you very much. We will now hear from the Financial Services Council.

Ms Brown : Thank you. The Financial Services Council represents Australia's retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks, licensed trustee companies and public trustees. The council has over 130 members, who are responsible for investing more than $1.8 trillion on behalf of 11 million Australians. The pool of funds under management is larger than Australia's gross domestic product and the capitalisation of the ASX. It is the fourth largest pool of managed funds in the world. Within the trustee sector of their businesses, trustee corporation members act as trustees or co-trustees for over 2,100 charitable trusts or foundations, with assets of around $3.2 billion.

The FSC and our members are concerned about the inappropriate application of the ACNC draft exposure bill to licensed trustee companies and public trustees. We believe that the practical outcomes of the provisions of the bill do not correspond with the overarching purpose of the bill, which is to establish a new regulatory framework for the not-for-profit sector. In our submission, we refer to organisations operating in the not-for-profit sector as 'charitable institutions'. While the bill is supposed to be aimed at regulating charitable institutions, it seems that charitable funds and their trustees are inadvertently captured. In our view, trustee company trustees or the public trustee of a charitable fund cannot properly be described as an organisation that is operating in the not-for-profit sector.

The bill makes charitable funds and charitable institutions eligible for registration with the ACNC, and then goes on to apply reporting requirements, governance standards and the ACNC's enforcement powers to all registered entities.

The bill therefore creates a new layer of regulation that applies to trustee companies and public trustees as trustees of registered entities. This is unnecessary and incompatible with current federal, state and territory regulatory regimes.

Specifically, with regard to the reporting requirements, the governance standards and the ACNC enforcement powers, we point out that these provisions are inconsistent with or overlap the common law of trusts and state and territory trustee legislation, inconsistent with or overlap the Corporations Law and ASIC's regulatory role, inconsistent with or overlap the ATO's guidelines on public and private ancillary funds, and are possibly inconsistent with the Australian Constitution and inconsistent with the overarching purpose of the ACNC draft legislation.

The bill is not appropriately targeted to the currently under-regulated not-for-profit sector; instead it shifts the cost of compliance to other entities who are not supposed to be the focus of this reform. We are therefore seeking amendments to the bill that would better achieve its overarching purpose to establish a new regulatory framework for the not-for-profit sector. Thank you.

CHAIR: Thank you very much.

Mr Sheehy : Our organisation represents over 7,000 governance and risk professionals and our members have primary responsibility to ensure their organisation has governance procedures in place. Many of our members in their out-of-work capacity act as directors of not-for-profits and we have drawn on their experience as a result. My organisation has for some time strongly supported the establishment of an independent statutory office, the ACNC. We have long supported the adoption of a new regulator for the not-for-profit sector and this amended draft legislation is a positive step in that direction. We are also supportive of the thrust of the legislation as it seeks to strengthen the sector's transparency and governance responsibility. However, we believe it is important that a balance be struck between driving continuous improvement across the sector and imposing prescriptive standards and regulatory burdens that are difficult to tailor to a sector which has such diversity.

Our principal concern with the exposure draft is the duplication of reporting that will result if the bills are passed in their current form. The draft legislation does not address the question of how the proposed regime will coexist with existing parallel legislation. As one other commentator said earlier, we accept as a consequence of some of our recommendations that a short delay may be required to the start date of the regulator.

Many charities and not-for-profits which were created under state based incorporated associations legislation will now be faced with a parallel Commonwealth regulatory and reporting framework. For example, companies limited by guarantee are already subject to regulation under the Australian Securities and Investment Commission. Accordingly, we have previously recommended the referral of powers, as occurred with the Corporations Act. However, given that such a referral of powers could take some time, we recommend that consideration be given as to how to best ameliorate the burden of duplicated reporting. We suggest, for example, that one approach may be to put in place transitional arrangements whereby any charity or not-for-profit currently reporting under state legislation or under the Corporations Act is exempt from reporting under Commonwealth legislation. We should point out, though, that this needs to be introduced at the same time as the referral of powers takes place.

On a different note, it is difficult for us to make precise comment on the governance standards as these have not yet been released for public consultation. Nevertheless, we hope they are principles based and flexible. We would like to draw your attention to the ASX Corporate Governance Council's principles and recommendations which have become what we think are the default guidelines on governance, but they are adaptable as they operate on an if not, why not basis, and we do hope that the same proposal is adopted with the not-for-profit sector.

I would like to close with echoing some of the comments I have heard earlier in regard to the liabilities and obligations placed on directors in the sector. We believe that these appear to be more onerous than is necessary as the sector typically relies upon the unpaid time and voluntary service of its directors, officers and many other staff. Nevertheless, we are generally supportive of the legislation and urge its speedy implementation. Thank you.

CHAIR: Thank you very much. Can I start by going back to the directors liability issue. I really welcome your input on this. My reading of it at the moment is that the only time the corporate veil is actually pierced, apart from wilful misconduct or reckless behaviour on the part of a director, is where the director has not complied with the direction from the commission and has not demonstrated that he or she took reasonable steps to comply. I need you to talk me through why that is so onerous.

Mr Crouch : That is not what the draft legislation says in part 7-4, section 180-5. It says: 'an obligation imposed under this act on an entity—ie, the not-for-profit organisation—is also imposed on each entity—ie, its directors'. So every single obligation in the act is also imposed on the directors.

Ms Fox : The bill also imposes obligations, liabilities and offences on covered entities and that is those responsible for managing the registered not-for-profit entity, and where the registered not-for-profit entity is an unincorporated association the effect of the provisions is to impose all of the obligations as well as the liabilities of the unincorporated association on each member of the committee of management at the time the obligation arises or the liability becomes payable and to render any offence of the unincorporated association as being taken to have been committed by each member of the committee of management. Those liabilities and obligations are far more than are imposed on directors under the Corporations Act.

CHAIR: Again, I understand your point that the obligations being imposed on a body corporate are imposed on each director. It is in 13.188 as well. But liabilities is treated differently, as I understand it, with 13.189 stating:

13.189   A liability that is payable under the Bill by a body corporate is payable by each director of the body corporate at the time the amount became payable, only if the liability arose because of:

the director’s dishonesty, gross negligence or recklessness; or

a deliberate act or omission of the director.

Mr Gonski : The first bit would be potentially fine if you are only liable where it was 'reckless' et cetera. But in relation to the second bit, where it arises from an omission or act, take, for example, a board of a school—maybe a school for the disabled or whatever. They could well take an act—for example, an act to build a building or to employ a person or whatever—and then, if it is not within the regulations or it is not dealt with properly, the way I read it, they have a liability, irrespective of whether they were honest or dishonest.

The second point I would make is if it is decided by the committee that this is all rectified by removing 'omission or act' and just making it 'recklessness' et cetera—which I think by the way is getting close to the point—I would still make the point that I think it is not good to have legislation which says, 'You are liable, but by the way if you come within this exemption you are not.' It seems to me that that is not really what we are trying to do or what I would be suggesting to you we should be trying to do, which is to foster volunteerism in the sector. It would be much better to say, 'They are not liable if they act properly et cetera, but if it can be proved that they have acted improperly then that is a different thing.'

CHAIR: Yes, I see your point; it is a deliberate act. You are right.

Mr CIOBO: We have dealt with this to some extent already but I want to explore further the issue about directors' liability. For those who would seek to make comment perhaps we will start with AICD. What would you propose as a direct recommendation to the committee ought to be the way in which legislation is drafted to allay your concerns?

Mr Colvin : Firstly I would suggest that there is no need for any provisions for director liability in this act, because it is already covered by other state acts. That is the first point. By putting in any further obligations, you are putting additional burdens on volunteers. The second point is really what David Gonski has put and as I understand is what happens in other countries—what they call 'light-touch regulation'. It means that, if something fraudulent or reckless is done, only then would there be any liability attaching to volunteers, who are giving their time for free, and who cannot possibly be there managing the company. Fundamentally, as David Gonski has already pointed out, why should we have a system in Australia, which would make us a laughing-stock around the world, of having liabilities for volunteers greater than those for for-profits?

So there are two points there. Why have them in any event? And, if you look at the powers of the ACNC under this act, they can remove people. They can compel who are involved in this to turn up to various investigations. There is a whole raft of quite heavy regulation which can cover most of these situations. So, firstly, why would you need director obligations in the first place? Secondly, if you are going to have them—and I understand this is the case in the United Kingdom—it would only be directed at what I would call the reckless or fraudulent area. That could simply be put in one sentence. It does not need to start off from the premise, which we would argue is overreaching legislation, that everybody is basically considered liable and then has to prove they are not. We consider that type of legislation, and that approach to legislation, to be totally unacceptable in areas like this.

Mr CIOBO: That is beneficial. I have a broader question. Previous witnesses this morning made comment about their desire for there to be a principles based rather than a codified approach to the legislation, with respect to activities, actions and duties. Do you have any comments around that?

Mr Sheehy : I think all we have to do is to look at how successful the ASX Corporate Governance Council principles have been in influencing the behaviour of listed companies and the fact that they have become, as I said earlier, almost a de facto standard for outside the listed sector. All we have to do is to look at the positive impact they have had and simply look to replicate it. But to have a retrograde step where we have prescriptive governance standards would be a dreadful step backwards, and in particular for a sector that is as diverse as the not-for-profit sector. This country's governance framework, with some prescriptive law in the Corporations Act but a significant amount of governance guidelines being principles based, has been so effective compared to other jurisdictions around the world. I think that should be replicated for this sector.

Ms Fox : I think we need to take a step back and go: this bill is to establish the regulator and the regulator's powers and the actual obligations of the entities that it regulates should be dealt with quite separately. We hope that those obligations in the regulations are in fact dealt with on a very principles based and flexible approach. They should be high-level principles. There should then be a great deal of flexibility for organisations to respond according to their individual circumstances, which is the basis of the ASX Corporate Governance Council's guidelines.

We should not embed further prescriptive standards into this bill, which is about establishing a regulator. How we deal with the entities it regulates should be dealt with quite separately and can be dealt with on a high-level principles based approach.

Mr CIOBO: Thank you.

Mr Colvin : I would agree with most of those points. The overriding issue—and this committee knows this as well as anybody—is the huge diversity of not-for-profits and charities. We have had member feedback, which has been huge, on this issue. It has come from Indigenous corporations, the aged-care sector, regional Australia and Tasmanian directors, all saying basically the same thing as we have said. I will quote from one which I think is very pertinent. It comes from an aged-care CEO:

Every hour we pay for compliance, we lose about 1½ hours of one-to-one support for our ageing residents.

That is indicative of the type of member feedback we are getting. Another one from an Indigenous corporation states:

This legislation compounds the barriers that discourage pro bono directors offering their services to the not-for-profit sector.

Those are the two major elements: firstly, light-touch regulation, which many of us have been saying is required; and, secondly, ensuring that we encourage people to continue their services to a sector which is vital. Also, if we get this wrong, then the people who suffer are the most disadvantaged people in society which these people are trying to assist. Those are the general overriding principles.

I would like to support what is said about the principle of good corporate governance. A prescriptive approach under this legislation could be quite detrimental. Firstly, as we said, the 'if not, why not' approach ensures that directors have to think about it in terms of their own particular charity. Secondly, if you have black-letter law in this area you actually solidify bad practices and then you have to get them changed. It does not deal with the one-size-fits-all anti good corporate governance. You need great flexibility and you need to ensure that, for any sector in Australian industry in terms of this matter, the most flexibility.

Ms O'DWYER: Thank you very much for your testimony today. I am very persuaded by a number of the points that you have raised. I want to pick up on what John was talking about regarding a one-size-fits-all approach. I am particularly interested in the testimony provided regarding light-touch regulation, voluntary codes and voluntary reporting. I want to get your thoughts on whether this one-size-fits-all approach will have an impact on not-for-profits in that it might discourage innovation and potentially some not-for-profits setting up or going in a particular direction that they otherwise might not go because of this more onerous and prescriptive regulation. Do you have any thoughts on that?

Ms Fox : If we come back to that question of very high level principles and flexibility, then it is scalable; it is the organisation itself that decides what is appropriate to its circumstances. So you avoid a black-letter law, prescriptive approach to government standards and to the obligations of the people who are volunteering their time but you provide them with a principles based framework within which they can operate and put the emphasis on disclosure, not on compliance, so that everyone who is involved in the organisation has a very clear view on transparency, how their organisation operates and how the decisions that they take are made. But you do not put the emphasis on compliance, which means an enormous amount of time is taken up in trying to meet their compliance obligations.

That is probably the way in which you deal with it.

Mr Gonski : I think the question is a very good one. Firstly, with respect to the point that John Colvin was making on one size fits all, we just have to be very cognisant of that here. Firstly, we all know that there are thousands of not-for-profits in Australia. Some of them, by the way, do not get tax deductibility et cetera. In fact, the bulk of them do not. Compare, for example, the ability of a very large or powerful charity to understand black-letter law with perhaps a bowling club or something in a small regional area. These are tiny organisations and we desperately want for the best people there to come on the boards and look after them. But if we prescribe too high, firstly, they will just breach because they do not have a choice. They may not even know what we have prescribed. Secondly, if we assist them by giving some sort of a feeler of what they should do, we are helping to educate at the same time.

As to innovation and so on, that is absolutely right. Our concern is that many will not become directors of these things, and they are the very people who, by the way, are needed. Secondly, they may not want to branch out and make these not-for-profits do really well because they would be scared that they may not be able to adhere to a black-letter law approach.

Ms O'DWYER: Thank you for that. I am also interested in the enforcement powers of the commissioner. Currently, the act refers to how the commissioner, if they reasonably believe that the 'registered entity has contravened or is likely to contravene' a provision of the act that they can obviously undertake enforcement action. I wonder whether you have some comments around, in particular, the wording 'is likely to contravene' and your thoughts on potential implications for the sector.

Ms Fox : One of the biggest issues is procedural fairness. There are quite a lot of procedural fairness issues that are lacking in the bill, particularly around refusal of registration, removal of a responsible entity, and there are no periods of suspension that are provided for. We would say that there are very well-established principles in the consumer credit and corporations legislation that could be incorporated in the bill. We can look at what is set up for ASIC as a model. There is no reason why those procedural fairness issues should vary for this particular regulator. Then you could have an alignment of drafting, which answers your question about the wording of 'is likely to'.

Ms Brown : Can I just make the point that those powers or really the whole bill seem to apply—the whole bill does not differentiate between trustees of charitable funds and organisations operating in the not-for-profit sector because they are all registered entities under the bill. Of course, the great majority of trustee companies are publicly listed companies, so these provisions about removing a director of a publicly listed company simply cannot apply. It is completely incompatible with the Corporations Law and the right of shareholders to remove directors.

Ms Fox : I would also just say that we think there are some problems with the enforcement powers that are attached to the provision of false or misleading information. We feel that they are modelled on those that are available to the ATO but self-assessment of how much tax you need to pay is very different from inexperienced and underresourced volunteers inadvertently providing wrong information to the ACNC. That is where education is needed, not enforcement, and the penalties are inappropriate for the not-for-profits in this part of the bill. We do not think they should face a more severe regulatory regime for breach than well-resourced corporations and financial service providers. Those penalties are certainly not scalable, which they need to be. So that section needs to be looked at as well.

Mr Crouch : I would just like to comment that I do believe that the information-gathering, monitoring and sanctioning powers, including the ability to remove a director, are very heavy-handed. I would think they would be quite problematic from a regulator's perspective.

It is not something that any other regulator in Australia has any experience with and I do wonder why this regulator would want to have those powers and whether they would know how to use them.

Mr Colvin : The other point is that if somebody is going to be removed from a position, it should only be by way of a court order; it should not be by way of judge and jury being a regulator. They are fundamental principles of fairness which have been handed down through the ages and they should not be trammelled under this particular legislation. The other aspect, which needs a deal of consideration, is whether it is appropriate to have prudential standards taken out of the APRA approach or the taxation approach applied to this sector at all. That is particularly important. The number of unincorporated associations which we have is 440,000; incorporated associations, 136,000; there are 1,850 cooperatives; there are 9,000 charitable trusts; and, companies limited by guarantee are about 12,000. So the types of bodies you are dealing with here are probably the most diverse of any sector in Australia and that has to be recognised when dealing with this sector.

Ms O'DWYER: Giving you have had an opportunity to review the exposure legislation are there any examples overseas of comparable legislation that you are aware of or is this legislation, for want of a better description, a world first in terms of the regulator, its powers and new governance standards?

Mr Colvin : The only one I am aware of is the UK and I would refer you to some of their powers. They certainly do not have any director liabilities, from my brief reading—I must admit I have not gone through it in detail. They have certain approaches in this area.

Mr Gonski : The UK is a very good one to look at. If I may, I will underscore to you that there are really three functions of an ACNC. One of those is obviously to monitor, and I would endorse what has been said in terms of principle and making it a light touch. The second is to nurture. If you have a look at the UK, that is what they have done, so that they are able to assist people and in turn make sure that they can fulfil the obligations placed upon them. The final one, which has been mentioned, is to educate. I think, if we had an ACNC which did all of that, we would be doing what we want to do, which is to promote the sector and to bring it to a higher standard.

Ms Brown : I am of the view that the bill is too similar to the comparable bill for the commission in England and Wales and does not appropriately take into account that in Australia there is a slightly different system which involves public trustees and private, listed trustee companies licensed under the Corporations Law and involved in this sector. That does not incur in England and Wales and that is why we can see in this bill that that part has been forgotten and hence we have these problems with the bill.

Mr Sheehy : We are only really aware of similar legislation in the United Kingdom. So really this country has a once-in-a-lifetime opportunity to put in place the ACNC, which, hopefully, does not turn on the word 'regulator'. I would endorse David Gonski's comments that we have a golden opportunity to put in place an organisation—and I use that would carefully—as opposed to a regulator, which does educate and encourage. I am encouraged by the speed with which the ACNC's staff is setting up its education arm. That is a very positive development—and in a way it is almost disappointing, but it is necessary—that we spend the time we are focusing on the regulatory aspect.

I think there is a golden opportunity here and I hope it is grabbed by the teeth and run with.

Mr Colvin : It would be nice to see this legislation being held up around the world. For example, we are part of the Global Network of Directors Institutes. It would be nice to be holding it up as a great step forward as opposed to being one that is not to be emulated.

CHAIR: Thank you. I will ask for some closing statements. If the committee met and decided that it wanted to incorporate all of your concerns into a solution, could I quickly look at what the solution might look like? Again, I am not promising it in any way; I am just trying to get a bottom line from this group. The charity passport, the education role and the existence of the organisation seems to be something that you want, although you have concerns. You have concerns with a much lighter touch on the regulation, particularly in terms of directors; the piercing of the corporate veil, except in cases of gross misconduct and dishonesty; there are procedural fairness issues, which have been raised by a number of others, particularly relating to the removal of directors; possible conflicts between other laws and this, particularly in relation to trusts; and a delay in the way that the reporting requirements are required to allow for consideration of things such as what a review is and whether there would be duplication or even an increased compliance burden between state and federal governments while we sort that out. Is that pretty much where you are at?

Mr Colvin : You have basically nailed it. That would certainly be our approach. In our submission we have been a bit critical of the time limits on consultation. I think there is an opportunity to get some of the feedback before going into the next stage—get the feedback of this group, which you see as positive on certain aspects. I think you have gone through the shopping list which would be very valuable.

CHAIR: I have not heard from all of the other witnesses yet, but I just wanted to get the bottom line on this one.

Ms Hicks : All the people that you have in this time block are members of the ASX Corporate Governance Council. We had quite a bit of discussion on that. Whilst we have not seen the governance requirements, we know that principals which are pooled together by industry, not government, into a code, which is the ASX Corporate Governance Council in an if not, why not regime, does work for listed companies. Given we have not seen the governance regulations and are not too sure what is in them, but looking at the ASX corporate governance principles, there should be something to learn from that in the development of the governance for the ACNC and for the not-for-profit sector.

CHAIR: Thank you very much. Does anyone have anything further to add? Some of you on the phone have not had much to say yet.

Dr Shying : I just want to note a proposal for reporting which is reflected in paragraph 60.95, which is joint and collective reporting as opposed to what we would understand Corporations Act reporting, as consolidation or group reporting. There is the fact that the concept of joint and collective reporting is not developed. What would be the impact of having this other reporting that is in contradiction to group or consolidation reporting under accounting standards, and what are the implications of that in terms of the presentation of true and fair view reporting, a director's declaration and also the framework that the assurer will use to make their opinion?

CHAIR: Anyone else?

Mr Sheehy : On the phone, all the groups who are speaking today have worked together over many years on issues very similar to this, but obviously in the private sector. I know that we are all approaching this from the perspective that we want this to work. I would urge the committee to give this process the time to use the input in the best way you can from a group like this. We all have a lot of experience with this and we feel a bit rushed. As John said, you have certainly summarised the shopping list very effectively. Just give it the time to get it right.

CHAIR: Thank you for your evidence here today. If you have been asked to provide additional material please forward it to the secretary. You will be sent a copy of the transcript of your evidence to which you can make corrections of grammar and fact. I thank you all very much for a very constructive contribution.

Proceedings suspended from 11 : 30 to 11:46